Wall Street posted modest gains, but good enough for another record
high on the Dow. The S&P 500 Index closed within five points of its
record. Analysts estimate second-quarter earnings for S&P 500
companies rose 7.8 percent from a year ago, with financials projected to
have had the third-best profit growth among sectors. Tomorrow, we will
start seeing the major banks report earnings for the quarter.

Senate Republican leadership released the updated version of its healthcare bill today. Let’s cover the major changes.

The new version could preserve the 3.8% investment-income tax and an
0.9 percent surtax for the Medicare insurance program on people making
over $200,000 a year, a huge source of revenue introduced by the
Affordable Care Act and one of the biggest reasons Republicans wanted to
repeal Obamacare.

Other taxes including one on health-insurance
executives and a Medicare health-insurance tax would no longer be
repealed in this version. Numerous smaller taxes, like one on tanning
salons, would still be repealed. The original bill had $2 billion in funding to combat the opioid
crisis. The new version would increase that number to about $45 billion.

The
amendment would allow plans to exist that don’t comply with two
regulations set up under the Affordable Care Act: community rating and
essential health benefits. Those benefits include maternity and newborn
care, mental health services and addiction treatment, outpatient care,
hospitalization, emergency room visits and prescription drugs.

Insurer
groups, including the national Blue Cross Blue Shield Association, have
derided these “skinny plans,” saying they would raise insurance
premiums, destabilize the individual insurance market and undermine
protections for pre-existing medical conditions, by making policies that
cover existing conditions very expensive.

Like the earlier version, it would end a penalty on individuals who
do not obtain insurance and overhaul Obamacare subsidies to help people
buy insurance with tax credits. While ending a fine on people who
decline to obtain insurance, the Senate bill would force people who let
their coverage lapse to wait six months before coverage could resume.

The bill retained the previous draft bill’s phaseout of the Obamacare
expansion of the Medicaid government health insurance program for the
poor and disabled and sharp cuts to federal Medicaid spending beginning
in 2025. The BCRA also would change federal funding to Medicaid to a
per-capita structure — meaning the federal government would send states a
fixed amount of money per Medicaid enrollee in the state.

That’s
different from how it is now, where the federal government helps cover
enrollees based on how much their care costs, which can vary by person.
In all, the per-capita structure would leave states with less funding
than under the current law. As a result, Arizona would see a 17%
reduction in Medicaid funding by 2026.

The bill would allow people to use health savings accounts to help
pay for insurance premiums and contains an additional $70 billion to
help low-income insurance holders cover out-of-pocket medical
expenses. No word on how to pay for those expenses after the $70 billion
is exhausted.

The health-care industry is aligned against the proposal, which would
essentially create separate insurance markets for sick and healthy
people. Even the insurance industry’s top lobbying group, America’s
Health Insurance Plans, came out in public opposition to
the amendment after staying quiet through much of the Senate debate.
Whether the Cruz amendment stays in the bill is in doubt.

The American
Academy of Pediatrics, the American College of Physicians, the American
Lung Association, and American Hospital Association all expressed
opposition to the bill.

The American Heart Association, along
with American Cancer Society Cancer Action Network, American Diabetes
Association, American Lung Association, Cystic Fibrosis Foundation,
March of Dimes, Muscular Dystrophy Association, National Health Council,
National Organization for Rare Disorders, WomenHeart: The National
Coalition for Women with Heart Disease came out with a joint statement
against the revisions, specifically the Cruz amendment.

The score from the nonpartisan Congressional Budget Office estimated
that the first version of the BCRA would result in 22 million more
uninsured Americans by 2026 than the current system. The CBO is expected
to score the new version by Monday. We’re still likely to see many
millions of people losing or going without coverage because of this
bill. Although some of the taxes on wealthy people are retained, the
bill doesn’t appear to use much of that to cover low-income people.

McConnell has little room for error, as even three “no” votes among
Republican senators would sink the legislation. As of now, none of the
10 senators who came out publicly against the original version of the
bill have said they moved into the “yes” column.

Complicating matters
further, two Republican senators, Lindsey Graham and Bill Cassidy,
offered an alternative healthcare proposal minutes before McConnell
unveiled his new plan. It would redirect much of Obamacare’s federal
funding for health insurance to states.

Meanwhile, President Trump is in Paris. On the flight from the US to
France, Trump told reporters on Air Force One he is considering quotas
and tariffs to deal with the “big problem” of steel dumping from China
and others. The administration’s decision on steel could be unveiled in
the coming weeks.

In Paris, Trump held the door open to a reversal of
his decision to pull the United States out of the Paris climate accord
on Thursday, but did not say what he would need in return to persuade
him to do so.

Fed Chair Janet Yellen
returned to Capitol Hill today for the second session of her
semi-annual Humphrey-Hawkins testimony. Today, Yellen testified before
the Senate Banking Committee. The Fed raised its benchmark interest rate
in June for the third consecutive quarter, and it plans to begin
reducing its bond holdings this year. Yesterday, she laid out a dovish approach to monetary policy.

Yellen said it would be “quite
challenging” for U.S. growth to reach a 3-percent target set by
President Trump. Still, Yellen said the economy remained in good health,
stating: “I don’t see anything inherent in the nature of the expansion
that suggests it will come to an end anytime soon.”

So, today the focus
was on the Fed’s third mandate – as a regulator. Republicans sought
Yellen’s support for proposals to loosen or eliminate some strictures
imposed on financial institutions after the 2008 financial crisis.
Democrats pressed her to affirm the importance of those regulations.
Yellen agreed that some rules might be too strict, and expressed a
general willingness to consider changes.

She also reiterated her support
for reducing the regulation of community banks, a popular idea among
members of both parties, though specifics are hard to come by. Senator
Elizabeth Warren asked Yellen why the Fed had not removed members of
Wells Fargo’s board after a scandal involving the opening of fake
customer accounts. Yellen said the matter remained under investigation,
adding, “The behavior that we saw was egregious and unacceptable.”

Dallas Fed President Rob Kaplan
said he wants to see more evidence of a recovery in inflation before
committing to another rate hike. Kaplan, a Federal Open Market Committee
member this year, said “at present, with a federal funds rate at a
range of 100 to 125 basis points, I would like to see some greater
evidence that we are making progress toward meeting our 2% inflation
objective in the medium term.”

He joins Fed. Gov. Lael Brainard in
expressing reservation toward more rate hikes. (Minneapolis Fed
President Neel Kashkari opposed the June increase.) However, Kaplan does
say the plan to reduce the balance sheet “will likely be appropriate”
later this year.

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